Horizons Gunning to Retake Third Spot From the `Walmart of ETFs'

(Bloomberg) -- The firm that created the world’s first marijuana exchange-traded fund and the first ETF run by a robot is betting that kind of innovation will allow it to reclaim third place in Canada.

Horizons ETFs Management Canada Inc. is going after Vanguard Investments Canada Inc., which ousted it from the number-three spot four years ago, by focusing on thematic funds that differentiate it from some of the passive indexing offered by its competitors. BlackRock Inc.’s iShares and Bank of Montreal’s BMO Asset Management hold the top two spots in Canada respectively.

Vanguard declined to comment.

“We are not trying to directly compete with iShares, BMO, Vanguard on the plain-vanilla benchmark products where it’s just a price war and it’s a race to zero,” said Steven Hawkins, co-chief executive officer of Horizons, a unit of Korea’s Mirae Asset Global Investments Co. He described his two competitors as “the Walmart of ETFs.”

“Nobody can come into this marketplace and compete at that level,” he said in an interview at Bloomberg’s Toronto office. “You have to come up with new, exciting, innovative ideas, hooks for people to grab and sink their teeth into.”

To do this, Horizons plans to offer more ETFs centered around two main themes: artificial intelligence and robotics and automation.

The ETF issuer launched the Horizons Active A.I. Global Equity ETF under the ticker MIND on Nov. 1. Since its trading debut, MIND is down 3.6 percent compared with a gain of 0.6 percent in its benchmark, the MSCI All-Country World Index.

The exchange-traded fund industry, which is primarily based on indexing, is essentially an AI business so it stands to reason that the next step forward will be robot-run asset management, said Mark Noble, senior vice president of sales strategy at Horizons.

“The last decade was the decade of ETFs, they were the big disruptor in the asset-management industry,” Noble said. “My belief is the next decade, the big disruptor will be artificial intelligence.”

The AI behind MIND was developed by South Korea-based Qraft Technologies Inc. Qraft is building an office in Toronto to focus on AI in the financial industry, CEO Hyungsik Kim said in an email. The Toronto office will employ 20 to 30 people by the third quarter, he said.

The Canadian ETF market is fiercely competitive and growing quickly. Canadian ETFs saw a record C$26 billion ($21 billion) of inflows in 2017, up 56 percent from a year earlier, according to National Bank Financial analyst Daniel Straus. There were 169 new funds launched last year, up 70 percent, and 11 new providers.

ETFs are outselling standalone mutual funds two to one, Noble said. As a result, many of Canada’s traditional mutual fund providers have entered the ETF business, including AGF Management Ltd., Mackenzie Investments Corp. and Manulife Financial Corp.

Hawkins also expects growing competition from the big banks that could eventually result in “a big shift in market share,” but said the Canadian ETF space is growing fast enough to boost most players in the near term. Horizons plans to launch about 10 new funds this year.

“We think we’re in the heel of a hockey stick, we haven’t hit the handle yet,” he said, referring to shape. “We’re still going to grow and we’re still going to grow nicely.”

To contact the reporter on this story: Kristine Owram in Toronto at kowram@bloomberg.net.

To contact the editors responsible for this story: Arie Shapira at ashapira3@bloomberg.net, David Scanlan at dscanlan@bloomberg.net, Jacqueline Thorpe, Kristine Owram

©2018 Bloomberg L.P.